Take a Look at First Quarter Stats for Retail Real Estate

Real estate research firm Real Capital Analytics (RCA) recently came out with its retail trends report for February 2017. Meanwhile, real estate consulting firm Quantum Real Estate Advisors Inc. has just published its report on the performance of the retail real estate sector in the first quarter of 2017. Here are a few takeaways from both reports:

The sector’s overall vacancy rate rose by 30 basis points between the fourth quarter of 2016 and the first quarter of 2017, to 5.2 percent, Quantum Real Estate Advisors reports. Looking at major U.S. metros, San Francisco had one of the tightest vacancy rates, at 2.3 percent, while Chicago’s was on the higher end at 7.4 percent. Retail vacancies in New York City averaged 4.2 percent.

Average retail rents rose by 1.1 percent quarter-over-quarter to $17.55 per sq. ft. Annual rental rates declined slightly at regional malls, to $19.85 per sq. ft. from $20.32 per sq. ft. in 2016, but rose at power centers and neighborhood shopping centers (to $18.75 and $15.63 per sq. ft. respectively.)

Cap rates on sales of retail properties in 2016 averaged 6.6 percent. Quantum’s researchers expect those cap rates to continue rising with the interest rate increases in 2017. Already, cap rates on sales of class-A retail centers are averaging 7.03 percent, while class-C centers are trading at an average cap rate of 9.28 percent. RCA researchers note that retail was the main sector that seemed to experience a price correction as a result of the Fed raising its short-term benchmark rate in December. Cap rates on single-tenant retail assets went up by 20 basis points between October of last year and January of 2017.

There has been a drop-off in the volume of retail investment sales. Deal volume declined by 46 percent year-over-year in February. Similar declines occurred in December and January as well.